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How Mutual Fund Store is the real engine now at Financial Engines

Unable to hold 9 million hands as market tanked, Larry Raffone jumped when Warburg Pincus put The Mutual Fund Store on the block

Friday, November 6, 2015 – 10:17 PM by Brooke Southall
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Bill Sharpe founded Financial Engines so 401(k) participants, with the 1996 ERISA bar set at zippo, got baseline algorithmic attention -- a level of service whose deficiencies were exposed this summer.

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Mentioned in this article:

Financial Engines
401k Plan Consultant




Patrick Ryan

Patrick Ryan

November 6, 2015 — 11:31 PM

Seeing that more than half of the relationships behind Financial Engines’ assets and marketable opportunity are owned by the likes of Vanguard, Aon Hewitt and Voya, are they just going to bow down and let FE market the Mutual Fund Store to “their” clients? I doubt it!

Brian Murphy

Brian Murphy

November 6, 2015 — 11:53 PM

This story has so many holes in it, I don’t even know where to start. How about you go back to the drawing board, outline the FE / Mutual Fund Store deal, and come up with a few real reasons why it makes sense. My guess is that you can’t. Not because you’re not intelligent, but simply because it’s as ill-conceived a deal as Envestnet buying Yodlee.

People do stupid stuff all the time. No need to justify it with some fabricated list of “synergies”. Trying so hard to explain why something “makes sense” should in itself tell you it doesn’t.

As a stand alone entity, FE had all the makings of both an institutional and retail service provider. It’s already there and they’ve been executing on both sides of the equation – each with sub-optimal results. They’ve never fully gotten to product / market fit on institutional, or retail, robo side, but haven’t recognized this to be a problem. The fact that they have offices in Boston (because that’s where the CEO lives), Silicon Valley and AZ tells you they just don’t know how to make rational decisions.

If nothing else, it will be fun to watch the next few years unfold in FinTech.

Brooke Southall

Brooke Southall

November 7, 2015 — 12:58 AM

Patrick and Ryan,

Good thoughts about the challenges faced here.

I tend to give the deal makers the benefit of the doubt early on
in the process if for no other reason than that they are putting their
money where their mouth is. It’s also money they have earned as
businesses.

Meanwhile, the macro concept holds some water. These are two mass market, mass affluent
fiduciaries converging on 9 million underserved investors.

Something might actually go right?!

Brooke

Brian Murphy

Brian Murphy

November 7, 2015 — 1:23 AM

First, Brooke you are to be applauded for breaking the story early.

I do want to make a correction however, and that is that they are not putting their money where their mouths are here – they are putting shareholder money where their mouths are…and that’s a very different proposition.

Yes, perhaps it’ll all work out – there is an installed base, but given that FE has had access to that installed base for years and hasn’t figured out how to effectively market to them, why would this change anything?

Things are getting more interesting all the time however.

Stephen Winks

Stephen Winks

November 7, 2015 — 10:40 PM

We are at the very early stages of fin/tech innovation, so it is premature to make an assessment now. The opportunity for innovation is massive given the brokerage industry’s reticence to support their brokers in rendering advice (in a fiduciary capacity). With Bill Sharp an extraordinary and technically competent value proposition can be crafted which would preempt brokerage advice products. Brokers operating on their own are not particularly good at overarching portfolio construction which is individualized advice. There is nothing to hinder the retraining of the Mutual Find Store advisors with an enhanced value proposition beyond that which is possible in a brokerage format. An apples to apples value proposition comparison delineating a broad range of investment and administrative values addressed and managed combined with very favorable pricing can be most compelling. Wall Street would find the FE value proposition very difficult to beat net of fees even if the Financial Engines performance is just average. Thus, give it a year or so to see if the new Financial Engines has a sense of the opportunity and can execute. We also have to see if conventional brokerage gets religion and adopts electronic means to help its brokers render advice and fulfill their fiduciary duties as required by statute of all those who render advice.
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Stephen Winks

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